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Pennsylvania Public Utility CommissionWinter MeetingNovember 09, 2006
Harry Hunter Hanger Jr.Manager of Imports and Risk Management
Atlantic Energy Import TerminalChesapeake, VA
A UGI Energy Services Company
Propane Supply and Logistics Overview
2
U.S. Propane SupplyDomestic propane supplies are sourced from:
50% Natural Gas Processing50% Crude Oil Refining
10-15% of U.S. supply is Imported from: Canada by rail or pipelineWaterborne Import Terminals
Price Basis Locations:Mount Belvieu, Texas (Gulf Coast)Conway, Kansas (Mid-Continent)
Pricing have generally followed crude values during the spring and summer and then followed demand fundamentals during the winter peak demand season (pricing increasingly more volatile)
3
Propane Value Relationship to Crude and NG
4
U. S. Propane Demand
Petrochemical Feedstock Building blocks for plastics, fibers, and chemicals
Retail Market (Highly Seasonal)
Residential Customers
Commercial space heating
Industrial space heating and processes
Agricultural crop drying
Engine fuel (folk lifts)
Grill Cylinders
5
Engine Fuel6.2%
Residential48.2%
Agricultural 6.9%
Industrial 11.1%
Commercial22.9%
Cylinder Refill 4.9%
Retail Market End Users
6
Retail Marketing Companies
Fragmented Market with 4,000+ Companies in the U.S.Large Multi-State Marketers
Regional Independents
Small “Mom & Pop” companies
Broad range of sophistication and operating philosophy
Largest multi-state marketer has +/- 10% market share
Retail segment sells around 11 billion gallons annually
50% of annual sales are made during 4 winter months
7
Retail Marketers Portion of Sales (2003)
56%
6%9%11%
6%
4%
3%
2%1%1%
1%
AmeriGas
Ferrellgas
Suburban
Cenex
Heritage
Cornerstone
Star Gas
Inergy
MFA
Southern States
Independent Marketers
8October 16-17, 2000 NPGA Board Meeting - Minneapolis, MN 11Slide
U.S. Propane Storage Capacities
131.58
5.35 12.360.83 9.15 1.69
111.25
0
20
40
60
80
100
120
140
Mill ion Barre ls 131.58 5.35 12.36 0.83 9.15 1.69 111.25
Under-ground
(Primary)
Above-ground
(Primary)Ra ilcars Transports Dealer Bulk
(Secondary) Bobtai lsDomestic Consumer (Tertiary)
Million Barrels
9
Distribution Logistics
Over 250 Distribution Supply Points across U.S.Major storage and pipeline terminal facilities (Belvieu, Conway, Hattiesburg, Sarnia)
Refineries
Natural Gas Plants and Fractionation Facilities
Pipeline Terminals
Rail Terminals
Waterborne Import Terminals
Truck transportation is required from these distribution supply points to the propane dealer’s local bulk plant and then again to the end user tanks.
UNITED STATES LPG DISTRIBUTION SYSTEM
MAJOR LPG PRODUCT PIPELINE
MAJOR LPG PRODUCT IMPORT TERMINALS
CN
MAP
CO
MONT BELVIEU1
Edmonton3
CONWAY/HUTCHINSON4
SARNIA5
Hattiesburg2
CN
TEP
TEP
DIX
TEP
MAPMAP
MAP
KO
MAP
PH
PH
TEP
RG
KA
KM KMCO
33
DIX
MA
PH
LEGEND
5CO5
11
Transporting PropaneHigh seasonal heating demand for propane results in
competition for limited delivery capacity during the winter months.
Demand ratios in PA area are 6 X 1 (winter vs. summer) with pipeline delivery capacity of a little over 2 X 1 and refineries production is about 1 X 1
These ratios require supplemental supply sources (storage/rail)
Typical tank sizes for the various means of transportation:
Ocean Going Ships –----------- 4 to 18 MGBarges ----------------------------- 420k to 1 MGRailcars --------- -------------------- 30,000 gallonsTransport trucks ---------------- 10,000 gallonsDelivery Bobtails ---------------- 3,000 gallons
12
Residential Storage
A residential home tank is sized based on propane appliances and types of usage (500 or 1,000 gallon tank)
Generally, residential customers will need a delivery every 30 days and should be able to go 45 days assuming normal winter weather
Deliveries are typically scheduled by a computer program that projects usage factoring in customer appliances, usage history, and actual Degree Days
13
Pennsylvania Sources of PropaneRetail Demand of Around 350 Million Gallons per Year
TEPPCO Pipeline (Dubois, Greensburg, Eagle)
Refineries (Del City and NJ refineries)
Storage Terminal (Schafferstown)
Rail Cars directly to dealer bulk storage locations
Rail Cars to Transshipment Terminals (6 locations)
Import Terminals and Storage Facilities in surrounding states supplement supply in PA during peak demand
14
TEPPCO TERMINALS
SHIPPER TERMINALS
Arcadia
KingslandN. Little Rock
FontaineDexter
Calvert City
PrincetonSeymour
Mt. Belvieu
Lebanon, IN
Griffin
Rock Island
Lemont/Joliet/Blue Island
Todhunter
Lima
CoshoctonGreensburg
Sch'town/Sinking Spring
Twin Oaks/
DuBois
Watkins Glen
Hartford Mills
OneontaSelkirk
Providence
Hastings
W. Memphis
Marcus Hook
Eagle
Baytown Beaumont Marine
Lebanon
Helena
El Dorado
Cape Girardeau
Tyler
Creal Springs
CENTENNIAL PIPELINE
TEPPCO System Overview
15
Truck Transportation Delivery Costs
Truck deliveries to retail dealer bulk plants are effected by:Distance from supply source
Seasonal Demands
Driver DOT on duty time limitations
Customer faithfulness to a carrier during the slow season
Road conditions
Availability of loading space
Performance of other trucks and rail transportation options
In general, the Truck transportation Differential in PA is 4-8 CPG
16
Laid-In Location Differential Costs to PA Supply Points
Effected by:
Geographic area within state
Method of delivery (pipeline, rail, refinery)
Season (summer or peak winter—6X1 ratio)
Demand (weather pattern/timing)
Performance of other supply points
Performance of truck and rail transportation
In general Location Differentials at PA primary supply points:
Summer 6-12 CPG
Winter 14-25+ CPG
17
Component Costs of Retail Price of Propane in PA Market
Basis Cost (current market value @ Mt. Belieu, TX)
PLUS
Location Differential (cost to deliver to particular market area)
PLUS
Transport Freight Cost (tractor trailer delivery to bulk plant)
PLUS
Bobtail Delivery Cost (final delivery to customer)
PLUS
Dealer margin to cover operating costs, etc.
18
Summary of Winter Propane Supply for PA
U.S. overall inventory is at 2nd highest levels since 1993 (72 million bb or over 3 billion gallons)
PA inventories are at seasonal levels (proprietary information)
TEPPCO has increase pump capacity to PA terminals by 300k gallons per day (an increase of +40% over last year)
U.S. propane base value at MB has been very volatile and has ranged between 90.00 cpg and 1.15 cpg since last May
Supply and transportation are positioned for normal weather patterns and demand
Continued refinery propane production during peak demand is a crucial factor significantly influencing supply availability and pricing in this market
Ultimately the most significant factor in the Mid-Atlantic propane market is the pattern and intensity of the cold weather
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